Self-Employed Income Support Scheme SEISS – March 2021 Update

The fourth grant will be available from Late April 2021 until 31st May 2021.  If you are eligible then HMRC will contact you in mid-April to give you your personal claim date.  There will be further guidance to follow.  There are some amendments to the basis for claiming and the income calculations, more HMRC information can be found here.

There is also an important change for those traders who started their business in the 2019/2020 tax year (these were previously excluded from the grant), however applying for the grant may not be straight forward for some of these traders, as HMRC are writing a group of these new traders (around 100,000 traders) asking for confirmation of identity and proof of trading.  If you receive such a request from HMRC and do not respond then you will be denied access to the grant – you will be required to complete a pre-verification check and you must complete all 7 steps to make a successful claim – these steps are as follows:

Step 1: Open the letter

Receive and read the HMRC letter which should arrive between 10 March and mid-April.  The list of genuine HMRC contacts has recently been updated to include reference to the SEISS letter to first time tax return filers, so this might provide some comfort to taxpayers that the HMRC letter should not be ignored.  

Step 2: Answer call from HMRC

Up to two weeks after the letter is sent an HMRC officer will call the contact number given on the taxpayer’s 2019/20 tax return. If the agent’s number was shown as the contact point HMRC will ask the agent to pass on their client’s telephone number.

The taxpayer needs to answer HMRC’s call although it will be shown as coming from an “unknown number”.

HMRC will make only three attempts to call between 8am and 5.30pm. If none of those three attempts are successful the taxpayer will have failed the pre-verification. It is therefore essential that HMRC has the taxpayer’s correct telephone number.

The taxpayer can correct the number held by HMRC by calling: 0800 024 1222. This number is only set up to update taxpayers’ telephone contact details; the call-handler can’t deal with further queries about the SEISS.

Step 3: Supply email address

When the taxpayer does speak to HMRC they must confirm or supply their email address. They must also agree to receive a link to a Dropbox account to that email address.  

Step 4: Find email from HMRC

The taxpayer must receive and open an email from HMRC that includes the Dropbox link. This is another point where the system could break down, as the HMRC email could easily be automatically sent to the taxpayer’s junk folder.  

Step 5: Digital copies

The taxpayer needs to make digital copies of a form of their ID (eg their photo-card driving licence, or current passport) plus three months of their UK business bank statements from 2019/20. This information is needed to demonstrate that the new business has been active in 2019/20.

If the business has been run without a UK bank account HMRC will accept other documents, but the taxpayer must agree what is acceptable in their call with HMRC.  

Step 6: Upload documents

Taxpayer has only two days to upload the digital copies of their ID and bank documents to the HMRC Dropbox. After two days the Dropbox link will expire and the taxpayer will fail the pre-verification. 

Step 7: Apply for the grant

The online portal to apply for the next SEISS grant will open in late April, HMRC hasn’t confirmed exactly when. All the above steps need to be completed before the taxpayer attempts to claim the SEISS grant. Tax agents cannot claim SEISS grants on behalf of their clients.  

Concerns

There are some obvious concerns around this system, particularly in respect of those that may simply not have the facilities to comply, the timescales involved and of course the fact that this looks like a scam.  Without prior warning you may dismiss the initial call as a scam, loading documents into a Dropbox has a particularly suspicious feel to it and sadly it is highly like that scammers will copy this procedure to launch attacks.

As your agent we cannot make the claim on your behalf but we should be able to assist in confirming the validity of any request and to advise if such a request for information would be relevant to you.

Recovery Loan Scheme – Launches 6th April 2021

This new loan scheme is to support access to finance for UK businesses as they grow and recover from the disruption of the COVID-19 pandemic.

The scheme launches on 6 April and is open until 31 December, subject to review. Loans will be available through a network of accredited lenders, whose names will be made public in due course.

More information can be found here

COVID19: Coronavirus Business Loan Schemes Extended – January and March 2021 Update

March 2021 Update: Businesses that took out government-backed Bounce Back Loans will now have greater flexibility to repay their loans with the option to delay repayments by six months or to extend the length of the loan using Pay as You Grow repayment flexible options.

Coronavirus Business Interruption Loan Scheme

The scheme helps small and medium-sized businesses to access loans and other kinds of finance up to £5 million.

The government guarantees 80% of the finance to the lender and pays interest and any fees for the first 12 months.

The scheme is open until 31 March 2021.

Coronavirus Bounce Back Loan

The scheme helps small and medium-sized businesses to borrow between £2,000 and up to 25% of their turnover. The maximum loan available is £50,000.

The government guarantees 100% of the loan and there won’t be any fees or interest to pay for the first 12 months. After 12 months the interest rate will be 2.5% a year.

The scheme is open to applications until 31 March 2021.

If you already have a Bounce Back Loan but borrowed less than you were entitled to, you can top up your existing loan to your maximum amount. You must request the top-up by 31 March 2021.

Vat Domestic Reverse Charge

See the bottom of this article for details of a free Webinar hosted by Xero (you don’t need to use Xero to access this webinar)

What is the VAT reverse charge?

The government is changing the way that HMRC collects VAT payments.
Until now, businesses in the construction industry would usually charge VAT when selling their materials or services, regardless of whether they are dealing with clients, contractors, subcontractors, etc.

As of March 1st, 2021, suppliers will not be allowed to charge VAT unless they are supplying services to an “end-user”. For those transactions, they must only invoice for and collect the amount excluding VAT. Instead of paying the VAT to the supplier, the customer will pay the VAT directly to HMRC.

Who is classed as an “end-user”?

Final customers are referred to as “end users” in the guidelines. Anyone who will either use, rent or sell the structure in question is an end-user, so for example:

  • Landlords
  • Developers
  • Domestic householders
  • Local authorities
  • Utility companies

Of course, this is made a little more complicated by the fact that “intermediary suppliers” are also treated as end-users, so if you deal with those, you can continue to charge them VAT too.
Your customer should confirm in writing that they are an end-user. (See Example End User Statement)

HMRC’s technical guide offers some further clarification on this distinction and what you should do to determine how your customers should be classified.

Download Flow Chart PDF

1. Read the government’s official advice.

We highly recommend scanning through the guidance published by HM Revenue & Customs for a better understanding. There are a lot of pointers there which are specific to different situations.

2. Talk to CGA

You will also be able to get more personalised advice CGA.   We can help you understand what the biggest impact will be on your business, given the way you work and what steps you should take.   

3. Consider how you handle your VAT returns.

It is common for contractors to do their VAT returns on a quarterly basis. If that is what you do, consider changing to monthly. Although it might require more admin in the short term, this may help balance out the effect on your cash flow.

4. Update your invoicing system.

You will need to review your invoices and potentially remove VAT from a lot of them moving forward. Make sure this is as systemised and automated as possible!

Invoices sent after 1 March 2021 will need to contain wording explaining that they are reverse charge invoices and will look something like our example.

They will not show VAT in the columns which calculate the payment to be made. On the following page there is an example invoice where no end-user certificate has been supplied.

See the example invoice.

The example invoice is not prescriptive – legally you do not have to show the VAT number of the customer, but it evidences that you have checked that they are registered and is good practice.

Your software system may not let you calculate the VAT that is being reverse charged and print it outside the accounting column. If you cannot show it, don’t worry. The recipient of the invoice will have to do the calculation themselves.

Use your software system to record as much information about your customer/supplier as possible.

What is important is that your invoice does not charge VAT and clearly shows that it is a reverse charge invoice and S55A applies.

5. Write to your subcontractors.

When your subcontractors invoice you for their services, they can no longer charge you VAT under the new rules, because you will owe it to HMRC directly instead. We suggest writing to them to confirm this, advise them on where to go for more information, and maybe offer to discuss further if needed. (See example letter to sub-contractors)

6. Write to your Customers (Intermediaries and End Users) – You need to establish if your customer is an intermediary or end user – they may be both.

See example letter to customers.

In deciding whether you are working for an end user you must ask yourself who you are actually contracted with, who are you expecting to pay you. Do not think about the final client if you will not be directly contracted to or paid by the final client. Ask yourself, is the firm that you work for going to be the end user of that building or construction activity?

Sometimes you will contract with a group company that is acting for another company in its own group as a property procurement company, it is an intermediary for the end user.
Sometimes you will work for a landlord who is acting for a group of tenants to procure and organise work.

The tenants are the end users and the landlord is an intermediary.

If a business is acting as an intermediary and is VAT registered and CIS registered and the work you are doing is standard rated construction work, you must reverse charge VAT unless the intermediary gives you an end user statement.

Intermediaries acting for groups or for tenants are allowed to issue end user statements. If they give an end user statement there is no need to question it or to enquire about the structure of the group companies, or the landlord tenant contract in any detail – if you hold an end user statement you must charge VAT.


FREE Webinar – Managing Reverse Charge VAT and CIS

Next week, on 26th February at 10am Xero are running a free webinar for construction businesses, outlining the Reverse Charge VAT changes and giving tips on how to prepare. This session is open to all construction businesses, regardless of whether they currently use Xero. 

We welcome you to join by clicking this registration link 

The 45 minute webinar will cover:

  • What Domestic Reverse Charge VAT is 
  • How it will affect both contractors and subcontractors
  • How to prepare for the mandatory change 
  • How Xero can help manage Domestic Reverse Charge VAT and CIS 

Brexit January 2021 Update

The UK and the EU agreed future trading terms of the UK-EU Trade and Cooperation Agreement. The UK has approved the agreement and it came into effect provisionally on 31 December 2020, whilst awaiting the EU to take steps to approve it.

See the agreement here:

Brexit: new rules – Government guidance

The Government has updated its guidance on the new rules that apply to travel and doing business with Europe. Clearly there are problems with the administration just now and we will keep you up to date of any issues as they arise.

You can check using the website below on what you need to do differently if you are:

  • importing goods from the EU
  • exporting goods to the EU
  • moving goods to or from Northern Ireland
  • providing services to EU countries
  • travelling to the EU
  • living and working in the EU
  • staying in the UK if you are an EU citizen

Selling services to the EU, Switzerland, Norway, Iceland and Liechtenstein

The UK-EU Trade and Cooperation Agreement ensures that UK firms in a variety of service sectors can continue to access the EU market, including as business travellers and cross-border services suppliers or investors, while being treated no less favourably than either EU businesses or competitors from third countries.

While the Agreement sets out expectations of the treatment and level of access to each Party’s domestic market, there will still be some changes for business as a result of no longer operating under European Economic Area (EEA) regulation covering cross-border trade in services. These changes are different for each sector and differ in each member state of the EU.

Click here for Government guidance for UK businesses on rules for selling services.

There are country guides and information for UK businesses providing services and travelling for business to countries in the EEA and Switzerland here.

Data sharing

How this affects your business will depend on several factors, including the nature of your business and where your customers are located. Data sharing with the EEA is one of the key areas to consider.

The Government has legislated so that UK firms can continue to lawfully send personal data from the UK to the EEA and 13 other countries that the EU has deemed to provide an adequate level of protection of personal data. They have also announced that the UK-EU Trade and Cooperation Agreement provides for the continued free flow of personal data from the EU and EEA to the UK until adequacy decisions are adopted, for no longer than 6 months.

The Information Commissioner’s Office (ICO) states that the agreement between the UK and the EU enables businesses and public bodies across all sectors to continue to freely receive data from the EU (and EEA). However, as a sensible precaution, the ICO recommends that businesses work with EU and EEA organisations who transfer personal data to them, to put in place alternative transfer mechanisms to safeguard against any interruption to the free flow of EU to UK personal data. Read more here.

This means that businesses and organisations can be confident in the free flow of personal data from 1 January, without having to make any changes to their data protection practices.

The new rules will take some time to “bed in” and we will keep you updated on practical actions to take and as new rules or agreements are made between the UK and the EU.  

Business Interruption Insurance

As the UK national lockdowns continue, we are pleased that there is some good news for hospitality and other businesses who were closed by the Government in the first lockdown, after the Supreme Court ruled that insurers should pay business interruption claims.

Small firms in line for business interruption insurance pay out

The Financial Conduct Authority (FCA) has won its court case to get insurers to pay out for business interruption due to the first lockdown in the spring of 2020. The Supreme Court says it “substantially allows” the appeal by the FCA and hospitality groups. The decision affects approximately 370,000 policyholders and over £1billion in claims which should now be paid out.  

Small businesses including pubs, cafes, wedding planners and beauty parlours, argued they faced becoming insolvent when they were refused compensation by insurers for business interruption policy claims on losses caused by the first national COVID-19 lockdown.

Some of the world’s largest commercial insurers including Hiscox, Royal Sun Alliance, QBE, Argenta, Arch and MS Amlin, told the Supreme Court in an appeal that many business interruption policies did not cover widespread disruption. The Court ruled against them.

This now means that the Supreme Court ruling will provide guidance on the claim adjustment process and it is hoped that this will progress quickly.

See:   https://www.supremecourt.uk/cases/uksc-2020-0177.html

The FCA has stated that they will be working with insurers to ensure that they now move quickly to pay claims that the judgment said should be paid, making interim payments wherever possible. Insurers should also communicate directly and quickly with policyholders who have made claims affected by the judgment to explain next steps.

See:  https://www.fca.org.uk/news/press-releases/supreme-court-judgment-business-interruption-insurance-test-case

Change of VAT rules for Builders and those in the Construction Scheme from 1st March 2021 – Final Countdown

This is the 3rd attempt at setting a date for the introduction of these changes and as it stands at the moment this date will not be changed.

It applies only to VAT-registered businesses who are supplying/receiving services that are reported under CIS.

In other words, it applies to services supplied between the majority of construction sub-contractors and contractors in the UK.

If your CIS business is the recipient of construction services, and receives an invoice with the reverse charge applied, then you account for the VAT amount as part of your overall input tax, as if you’ve charged it to yourself.

If your business is not VAT registered then the reverse charge cannot be applied to you, and standard VAT rules apply for the supplier (so they will charge you the VAT and account for it as usual).

If you’re not VAT registered, you should make it clear to the supplier in writing.

Crucially, reverse charges do not contribute to a company’s potential VAT threshold. So if you aren’t registered for VAT then any attempt to apply the reverse charge will not push you over the limit.

Notably, the reverse charge also doesn’t apply to end users, such as the people who use a building that’s been constructed by the provided services, and nor does it apply to some of those connected to them, such as landlords or tenants.

For sake of clarity, HMRC says the VAT reverse charge for construction doesn’t apply to sub-contractors unless the answer to all of the following questions is positive:

  • Are any of the supplies you are making within the scope of the CIS?
  • Is the supply standard or reduced-rated?
  • Is your customer VAT registered?
  • Will your payment be reported under CIS?
  • Are you sure the customer is not an end user?

Introduction of the VAT domestic reverse charge for construction

Many businesses use VAT payments from customers as a source of working capital before sending the funds to HMRC.

But from 1 March 2021, VAT cash will no longer flow between VAT registered businesses involved in the construction industry.

The UK government is rolling out a reverse charge initiative aimed at tackling fraud totalling millions of pounds per year.

This is caused when suppliers or ‘subcontractors’ charge main contractors VAT but ‘disappear’ before passing sums on to HMRC.

The VAT reverse charge rules apply to suppliers of specified services, reported under the CIS.

The changes also apply to goods, where those supplies are provided alongside services specified in the CIS. This will see many more businesses affected than first thought.

It is anticipated that the businesses most directly affected by the building and construction legislation will be those which supply services to main contractors, or that operate through recruitment agencies or umbrella companies.

How does the domestic reverse charge work?

Suppliers will no longer be required to charge or receive VAT from their main contractor customers.

Instead, main contractors will effectively charge themselves VAT on subcontractors’ services, and pay the VAT sums that would have been paid to the subcontractor direct to HMRC in their VAT returns.

From 1 March 2021, for impacted suppliers, subcontractors will need to issue domestic reverse charge VAT invoices to main contractors, which must include wording that reverse VAT rules apply and that the customer must account for the VAT.

This requirement applies through the supply chain until main contractors sell to end users (clients) who do not sell on services.

The new arrangements will only apply to:

  • Individuals or businesses registered for VAT in the UK, which sell to other VAT-registered businesses
  • Entities that provide services specified under CIS. These include the construction, renovation and demolition of structures; painting and decorating, as well as services such as heating, ventilation and air conditioning.

The arrangements do not apply to businesses providing other support services such as surveying, architecture and consultancy; machinery, drilling or extraction, and the installation of security systems.

HMRC covers a full breakdown of services are that are included and exempt under CIS.

Check when you must use the VAT reverse charge for building and construction services

When you must use the reverse charge

You must use the reverse charge for the following services:

  • constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not), including offshore installation services
  • constructing, altering, repairing, extending, demolishing of any works forming, or planned to form, part of the land, including (in particular) walls, roadworks, power lines, electronic communications equipment, aircraft runways, railways, inland waterways, docks and harbours, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage, coast protection or defence
  • installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
  • internal cleaning of buildings and structures, so far as carried out in the course of their construction, alteration, repair, extension or restoration
  • painting or decorating the inside or the external surfaces of any building or structure
  • services which form an integral part of, or are part of the preparation or completion of the services described above – including site clearance, earth-moving, excavation, tunnelling and boring, laying of foundations, erection of scaffolding, site restoration, landscaping and the provision of roadways and other access works

When you must not use the reverse charge

Do not use the charge for the following services, when supplied on their own:

  • drilling for, or extracting, oil or natural gas
  • extracting minerals (using underground or surface working) and tunnelling, boring, or construction of underground works, for this purpose
  • manufacturing building or engineering components or equipment, materials, plant or machinery, or delivering any of these to site
  • manufacturing components for heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems, or delivering any of these to site
  • the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
  • making, installing and repairing art works such as sculptures, murals and other items that are purely artistic signwriting and erecting, installing and repairing signboards and advertisements
  • installing seating, blinds and shutters
  • installing security systems, including burglar alarms, closed circuit television and public address systems

Flowchart to help you decide whether to apply normal vat rules or to apply the domestic reverse charge

Flowchart for businesses receiving building and construction services to check whether normal VAT rules or the domestic reverse charge applies

Supplier checks

A builder selling construction services must first be sure that his customer is both CIS and VAT registered.

It is recommended that the customer’s VAT number is checked by using HMRC’s new VAT number checker service. It might be worthwhile making this check an annual task, just in case the customer has deregistered during the year, perhaps due to reduced turnover.

A potential difficulty is when the customer is in the process of applying for a VAT number from HMRC. In this situation, you should consider the advice given in VAT Notice 735, para 9.3.2, which is to request a 20% advance deposit from the customer to cover the potential output tax liability if things go wrong.

The HMRC guidance advises: “Any deposit taken in these circumstances can be refunded when they can show evidence that they’ve got their VAT registration number.”

Customer checks

The challenge is to make sure that reasonable steps have been taken to check a customer is bona fide. A lot of this process comes down to common sense. If your client is doing business with a new customer, a due diligence process should have been carried out as part of the commercial decision to take on that customer.

HMRC has confirmed that a builder who has been deliberately misled by a customer but has taken reasonable steps to check their credibility will not be held responsible for underpaid output tax. The ‘reasonable steps’ issue is well-summarised by para 9.3.1 of VAT Notice 735.

Three points to remember

There are three priorities for those who are buying in building services from March onwards.

  • Incorrectly charged VAT – Make sure that you are not charged VAT by a builder when the reverse charge should apply. You can still claim input tax in Box 4 but HMRC has the power to assess output tax for the same amount, as if the reverse charge had been carried out correctly. 
  • Nature of work -Check that the work comes within the scope of the CIS and that the supplier is providing building services, but is not an employment business which is only making a supply of staff rather than construction services. Supplies by an employment business are subject to normal VAT rules.
  • End user or intermediary supplier -The final check is for customers to advise their builders before work starts if they qualify as either an ‘end user’ or ‘intermediary supplier’ for any of the work in question, as I explained in Domestic Reverse Charge: The final countdown for builders.

Conclusion

As with many issues in tax, advance planning is the key to reducing the risk of errors.

  • make sure your accounting systems and software can deal with the reverse charge
  • consider whether the change will impact your cash flow
  • make sure all your staff who are responsible for VAT accounting are familiar with the reverse charge and how it will work

The aim of the new rules is to reduce the incidence of VAT fraud in the construction industry – don’t play into the hands of the fraudsters by having weak checking procedures.

Apply for a Kickstart Scheme grant: 29 or less job placements

There has been a very welcome important change to this scheme.

From 3 February 2021, employers can apply directly to the Kickstart scheme for any number of job placements. We are removing the threshold of 30 job placements. You can also choose to apply through a Kickstart gateway, including those supporting sole traders.

Kickstart gateways already working with the scheme can continue to add more employers and job placements to their grant agreement.

What the Kickstart Scheme is

The Kickstart Scheme provides funding to create new job placements for 16 to 24 year olds on Universal Credit who are at risk of long term unemployment. Employers of all sizes can apply for funding which covers:

Employers can spread the start date of the job placements up until the end of December 2021.

Guidance – Apply for a Kickstart Scheme grant: 29 or less job placements

HMRC Deferred Payments Update

Coronavirus VAT Deferral Scheme – January 2021 Update

A new payment scheme will be opened by HMRC shortly to allow for payments of VAT originally deferred between 20th March 2020 and June 2020 to be paid in 11 interest free instalments.  All instalments must be paid by the end of March 2022.

You will need to opt into this scheme and we will update you further once the scheme is open.

Get ready to opt in to the new payment scheme

Before opting in you must:

  • create your own Government Gateway account if you don’t already have one
  • submit any outstanding VAT returns from the last 4 years. You will not be able to join the scheme if you have not done so
  • correct errors on your VAT returns as soon as possible
  • make sure you know how much you owe, including the amount you originally deferred and how much you may have already paid

You should also:

  • pay what you can as soon as possible to allow us to show the correct deferred VAT balance
  • consider the number of equal instalments you’ll need, from 2 to 11 months

October 2020 Update

VAT

On the 24th September the chancellor announced that businesses who deferred VAT due from 20th March to 30th June 2020 will now have the option to pay in smaller payments over a longer period of time.  Smaller payments can now be made up to the end of March 2022 and will be interest free.

You will need to opt into this scheme, more information will become available in the coming months regarding this.

Self- Assessment Tax

Check what you need to do after 31 July 2020 if you chose to defer your second payment on account for the 2019 to 2020 tax year.

HMRC have produced a summary of your options, however there is no extended deferral mechanism past 31st January 2021.

You can apply for Time To Pay – if you know that you cannot make your payments then the sooner you do this the better.

If your outstanding self-assessment tax is less than £30,000 then you can apply online for time to pay via your Personal Tax Account.

You can also use this option to set up any regular payment for self-assessment should you wish to put a budget plan in place. For more information on ways to pay click here.

Corporation Tax and Pay As You Earn

No deferral has been granted in respect of Corporation Tax liabilities or PAYE/NIC payments, businesses that attempt to get up and running again as the lockdown eases may find themselves in difficulty funding these liabilities, especially when business was tough even before lockdown.

If your business is facing that challenge during this time, you may be asking: will HMRC give me more time to pay Corporation Tax or PAYE/NIC liabilities if I cannot pay them on time? The answer is, they may, if you make a request for a Time to Pay arrangement with them.

Some key points you need to know before contacting HMRC about TTP

  • When to apply? As soon as possible if a tax payer thinks they will have difficulties making their next payment on a timely basis.
  • What do you need to prepare beforehand? Full information concerning the individual or business’s financial situation should be available, including but not limited to details of bank loans presently held, details of application for additional bank funding, the sale of assets, etc. This is because questions asked by HMRC can be detailed to the extreme.
  • Will there be interest involved? In any TTP arrangements, forward interest will be charged where appropriate.

It’s important to act now

While in recent months, HMRC Debt Management teams appear to have been applying a light touch in relation to the collection of arrears, this will not last forever. With this in mind, if your business has a tax debt, you should approach the appropriate Debt Management Team and reach an agreement to clear the arrears in a formal arrangement over a period of time.